Why File: A Size Protest

We at SmallGovCon are excited to announce this first in a new line of blogs we call Why File. Our firm handles a wide variety of federal procurement and contract litigation matters–from SBA size and status protests to contract claims and appeals, and everything in between. One of the most common and important questions we get in that regard is, should I file? Of course, we can only directly answer that question for our current clients after reviewing the relevant facts giving rise to the potential filing. But through our new Why File series, we will cover some of the most common facts and circumstances that lead contractors to initiate litigation. So, without further adieu, here is the first blog in the series, covering some of the most common reasons contractors file size protests.

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Back to Basics: Calculating Small Business Size

Most contractors, when starting their journey into the world of federal contracting eventually run into the same question: What size is my business? In the world of federal contracting, the size of your business can determine whether you can bid on certain procurements, participate in certain programs, and more. Miscalculating or misrepresenting your business size could open you up to size protests, and other severe repercussions. So, knowing the accurate size of your business could be critical to the success or failure of your federal contacting business. But don’t fear, in this edition of our Back to Basics series, we will discuss some of the basics around calculating the size of your business and why it all matters.

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COFC Confirms SBA Interpretation of Runway Extension Act

The Court of Federal Claims recently reviewed the Small Business Runway Extension Act, particularly SBA’s contention that it was not bound by the 5-year lookback period that Congress enacted for size receipt calculations. Now, SBA has issued its own rule that it will use the 5-year lookback period, at least after a two-year transition period, as discussed in our earlier posts. But there were still some cases working their way through the courts that examined how Congress implemented the Runway Extension Act and whether it applied to SBA or not. To make a long story short, the court agreed with SBA.

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SBA OHA: For Calculating Receipts, Look to Tax Returns

To calculate a company’s size under a receipts-based NAICS code, the SBA will add the company’s total income to its costs of goods sold, as those amounts are reported on its tax returns. In fact, the SBA’s regulations are clear that it must use these reported amounts to determine a company’s size status.

What happens, then, when a company’s taxes show “income” that might not really reflect money in the company’s accounts? The SBA’s Office of Hearings and Appeals recently considered this question, and affirmed a company’s ineligibility based on the income reported in its tax returns.

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Update: SBA Says 5-Year Receipts Calculation Period Not Yet Effective

On December 17, 2018, the Small Business Runway Extension Act became law. As we’ve previously written, this Act had a single purpose: to extend the measurement period of the SBA’s calculation of average annual receipts, from three years to five.

We opined that the Act became effective with the stroke of the President’s pen. Just a few days ago, however, the SBA disagreed—according to the SBA, the 5-year calculation period will not become effective until its regulations are revised.

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SBA Opposed Five-Year Small Business Size Period

The Small Business Runway Extension Act, signed into law earlier this week, changes the small business size calculation under revenue-based NAICS codes from a three-year to five-year average.

The new law has sparked a great deal of discussion in the government contracting community, with some commentators pointing out that not all small businesses will benefit.  But how does the SBA–the agency tasked with implementing the new law–feel?

Well, according to commentary published earlier this year, the SBA thinks the five-year period is a bad idea.

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SBA Rejects Major Changes in Size Standard Methodology

The SBA has rejected several recommendations for major changes in how the SBA calculates small business size status.

In commentary published in the Federal Register last week, the SBA rejected (among other things) recommendations that it use average employee count to evaluate the sizes of construction firms and that other firms’ sizes be measured by profits or net worth instead of average annual receipts.

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